Economists grow more pessimistic

May 12, 2008

Economists grow more pessimistic

WASHINGTON - EVEN with some signs of improvement in the United States financial markets and a temporary boost from the economic stimulus package, the growth outlook for the second half of the year has deteriorated, according to a panel of economic forecasters.

The weakest annual consumer spending since 1991 will lead to a darker outlook, the Blue Chip Economic Indicators has found.

The consensus of economists polled between May 5 and 6 in the survey said the economy would grow at a 1.7 per cent annual rate in the third quarter, down from the 2 per cent forecast a month ago.

For the fourth quarter, gross domestic product is expected to grow by 1.5 per cent, down from 1.9 per cent seen earlier.

The outlook for next year has also darkened, with economists expecting growth of just 2 per cent, down from 2.2 per cent forecast earlier.

Consumer spending, which accounts for 70 per cent of US economic growth, is expected to grow by a weak 1.5 per cent for the year. That will be the smallest rise since 1991 and will, in turn, impact corporate profits.

'Given the erosion in the outlook for consumer spending and business investment, the consensus now predicts pre-tax corporate profits will contract by 2.9 per cent this year and register growth of 5.3 per cent in 2009,' the newsletter said.

Even so, economists do not expect the Federal Reserve to lower interest rates any further. The US central banks has reduced its target interest rate by 3.25 percentage points since last September.

'Indeed, the consensus, seems to think the Federal Open Market Committee will begin to raise interest rates by late next spring,' the newsletter wrote.

REUTERS



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